4. Fair Value of Financial Instruments

The Company measures certain financial assets at fair value. Fair value is determined based upon the exit price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, as determined by either the principal market or the most advantageous market. Inputs used in the valuation techniques to derive fair values are classified based on a three-level hierarchy, as follows:

•

Level 1 — Quoted prices in active markets for identical assets or liabilities.

•

Level 2 — Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities.

•

Level 3 — Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

The following table details the fair value measurements within the fair value hierarchy of the Company’s financial assets and liabilities at September 30, 2018 and December 31, 2017:

	September 30, 2018
	Level 1		Level 2		Level 3		Total
	(in thousands)
Cash equivalents and investments:
Money market funds	$	4,353	$	—	$	—	$	4,353
Commercial paper		—		8,191		—		8,191
Corporate bonds		—		84,188		—		84,188
U.S. Treasury securities		—		386,021		—		386,021
Restricted cash:
Certificates of deposit		—		5,625		—		5,625
Total	$	4,353	$	484,025	$	—	$	488,378

	December 31, 2017
	Level 1		Level 2		Level 3		Total
	(in thousands)

Cash equivalents and investments:
Money market funds	$	12,845	$	—	$	—	$	12,845
Commercial paper		—		5,867		—		5,867
Corporate bonds		—		81,668		—		81,668
U.S. government agency obligations		—		3,987		—		3,987
U.S. Treasury securities		—		356,535		—		356,535
Restricted cash:
Certificates of deposit		—		5,105		—		5,105
Total	$	12,845	$	453,162	$	—	$	466,007

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less to be cash equivalents. The fair value of the Company’s investments in certain money market funds is their face value and such instruments are classified as Level 1 and are included in cash and cash equivalents on the consolidated balance sheets. At September 30, 2018 and December 31, 2017, our Level 2 securities were priced by pricing vendors. These pricing vendors utilize the most recent observable market information in pricing these securities or, if specific prices are not available for these securities, use other observable inputs like market transactions involving identical or comparable securities.

As of September 30, 2018, the fair value of the 2022 Notes was $658.0 million. The fair value was determined based

on the quoted price of the 2022 Notes in an inactive market on the last trading day of the reporting period and has been classified as

Level 2 within the fair value hierarchy.

For certain other financial instruments, including accounts receivable, accounts payable, capital leases and other current liabilities, the carrying amounts approximate their fair value due to the relatively short maturity of these balances.

Strategic investments consist of non-controlling equity investments in privately held companies. The Company elected the measurement alternative for these investments without readily determinable fair values and for which the Company does not have the ability to exercise significant influence. These investments are accounted for under the cost method of accounting. Under the cost method of accounting, the non-marketable equity securities are carried at cost less any impairment, plus or minus adjustments resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer, which is recorded within the statement of operations. The Company holds $3.8 million of strategic investments without readily determinable fair values at September 30, 2018 and $3.5 million of strategic investments without readily determinable fair values at December 31, 2017. These investments are included in other assets on the consolidated balance sheets. There have been no adjustments to the carrying value of strategic investments resulting from impairments or observable price changes.

The following tables summarize the composition of our short- and long-term investments at September 30, 2018 and December 31, 2017.

	September 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)
Commercial paper	$	8,202	$	—	$	(11	)	$	8,191
Corporate bonds		84,472		—		(284	)	$	84,188
U.S. Treasury securities		386,325		—		(304	)		386,021
Total	$	478,999	$	—	$	(599	)	$	478,400

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses			Aggregate Fair Value
	(in thousands)
Commercial paper	$	5,874	$	—	$	(7	)	$	5,867
Corporate bonds		81,947		—		(279	)		81,668
U.S. government agency obligations		4,000		—		(13	)		3,987
U.S. Treasury securities		356,671		8		(144	)		356,535
Total	$	448,492	$	8	$	(443	)	$	448,057

For all of our securities for which the amortized cost basis was greater than the fair value at September 30, 2018, the Company has concluded that there is no plan to sell the security nor is it more likely than not that the Company would be required to sell the security before its anticipated recovery. In making the determination as to whether the unrealized loss is other-than-temporary, the Company considered the length of time and extent the investment has been in an unrealized loss position, the financial condition and near-term prospects of the issuers, the issuers’ credit rating and the time to maturity.

Contractual Maturities

The contractual maturities of short-term and long-term investments held at September 30, 2018 and December 31, 2017 are as follows:

	September 30, 2018				December 31, 2017
	Amortized Cost Basis		Aggregate Fair Value		Amortized Cost Basis		Aggregate Fair Value
	(in thousands)				(in thousands)
Due within one year	$	465,685	$	465,166	$	416,932	$	416,663
Due after 1 year through 2 years		13,314		13,234		31,560		31,394
Total	$	478,999	$	478,400	$	448,492	$	448,057